Motorola jumps 15% in hot trading

Smaller-than-expected loss welcome news for investors

SCHAUMBURG, Ill. (CBS.MW) -- Motorola shareholders were recharged in midday trading Thursday as the stock jumped nearly 16 percent the day after the technology giant reported smaller-than-expected losses for the second quarter and painted a rosier picture of the future tinged with pink slips.

Motorola Corp.
MSI, -0.29%
was expected to show a per-share loss of 12 cents -- or worse -- for the quarter, but it did the estimate one better by reporting 11 cents, or $232 million, in losses. Sales plunged 19 percent to $7.52 billion from $9.25 billion a year ago.

That's far below the profit of 25 cents a share, or $551 million, earned a year ago but welcome news for investors nonetheless.

And they did embrace it. Motorola shares ended the session in the biggest one-day jump in more than a year. Shares closed up $2.48 to $18.15 - reaching their highest level since March.

During a conference call early Thursday, the mobile handset and telecommunications equipment giant again offered only fuzzy projections for the second half and indicated that another 4,000 employees will lose their jobs.

President Robert Growney told investors and analysts that he expects a loss of "several cents a share" in the third quarter with sequential sales growth of 5 percent.

Growney sees another 5 percent sequential sales increase in the fourth quarter that will leave Motorola "slightly profitable" when it ends.

Still, the company will fall short of analysts' projections for the second half. The First Call/Thomson Financial consensus of estimates projected break even for the third quarter and 11 cents in profits for the fourth.

Growney also said that he expects the workforce cuts to total 30,000 by the end of the year, 4,000 more than previous forecasts. He didn't offer any details.

Encouraging for the company, however, was Motorola's assertion that it's actually starting to regain marketshare with a cell-phone business that is improving. The company said its marketshare - once the leader - had surpassed 15 percent for the first time since early 2000.

Motorola's chief executive, Christopher Galvin, who only spoke briefly on the call, said that from a total corporate perspective, orders in the quarter were 15 percent lower than last year, but sequentially higher by 4 percent, or $275 million, from the first quarter.

In Wednesday's earnings release, Galvin said the beleaguered wireless telecom business is "already beginning to show signs of recovery." Galvin foresees "an increase in customer demand, especially for our new 2.5G products, starting in the third quarter." He was referring to wireless technology that lies between the current industry standard and the much-anticipated third generation, or "3G."

What's more, the semiconductor-sector slump might finally be about to see its end - next year. Galvin said he expects the industry to "resume a double-digit growth pattern next year," and he said he expects inventories to "return to normal levels" in tandem.

The good news, though, was tempered by the path Motorola took to get there. Growney said Motorola had cut costs by selling off certain assets and businesses, including investments in four cellular operating companies in northern Mexico to Telefonica SA. The company took an after-tax charge of 24 cents a share, or $496 million.

"Despite the difficulties the telecom and semiconductor industries continue to experience and our operational loss for the second quarter [of 9 cents a share], we continue to strengthen our balance sheet," he said. Cash flow from operations was "strongly positive," he assured investors, at about $1 billion.

"We know how to manage in recessionary environments and all businesses in Motorola will continue to be very focused on maintaining a strong balance sheet and improving operating cash flow," he said.

All divisions, however, were hit hard by what Galvin called the "sharpest downturns in high tech in decades" that has crippled tech stocks. Sales of personal communications products -- mostly wireless phones at discount prices -- tumbled 25 percent to $2.5 billion, a bit better than projected. Orders sank, too, down 9 percent to $2.9 billion. For the quarter, the segment lost $237 million vs. an operating profit of $136 million a year ago.

The situation was gloomier in semiconductors. Sales plummeted 38 percent to $1.3 billion, but orders crashed a stinging 51 percent to $1 billion. Semiconductors lost $381 million - deeper than expected -- vs. making $176 million last year.

As expected, sales were "down significantly" in Europe and the Americas, and down in Asia/Pacific. "Sales among major markets were down very significantly in standard embedded solutions," the company said, "down significantly in wireless and network/computing, down significantly in imaging/entertainment and down in transportation."

Motorola's integrated electronic systems segment -- the under-the-hood technology in cars - was hurt by the downturn in the auto industry. Sales dove 19 percent to $549 million while orders plummeted 21 percent to $554 million. The segment lost $3 million vs. earning $45 million a year ago.

Motorola's computer group sales were also "down significantly" while orders were "down very significantly" because of the slump in its major market, telecommunications.

Motorola also said that it "continues to explore alternatives...including legal action" for the nearly $2 billion owned it by Turkey-based Telsim, a GSM operator. Telsim defaulted in April on a $728 million loan payment to Motorola. Telsim also missed a $240 million payment to Motorola rival Nokia, which it owes $719 million.

Shares of Motorola gained 17 cents, or 1.1 percent, to end regular trading at $15.67. They last traded up 97 cents, or 6.2 percent, at $16.64.

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